Though the stock market is still rising, and though consumer sentiment is up (from 76.4 in March to 83.7 in April), economic warning signs continue to litter the road to recovery.
- For the month of April, industrial production declined 0.5 percent, with the manufacturing component of the report showing a 0.4 percent decline (and that figure follows a 0.3 percent decline in March).
- The Federal Reserve bank of Philadelphia showed that manufacturing declined from 1.2 in April to negative 5.2 in May. Demand for manufacturing goods (i.e. new orders) dropped from negative 1.0 in April to negative 7.9 in May, which indicates a deepening monthly contraction in manufacturing in the Mid-Atlantic states. Employment figures showed continued weakness. The employment index decreased two points to negative 8.7 — its second consecutive negative reading.
- Housing starts plunged 16.5 percent in April, but new building permits rose 35.8 percent. Though the significant rise in building permits raises some hope, home sales are slowing, either for lack of demand or because of buyers inability to secure financing. Recently, it was reported that a significant number of home sale were to investors rather than to individual buyers. According to the National Association of Realtors, 27% of recent home sales were “cash sales,” which indicates the homes were sold to large investment firms. Some are referring to the recent activity as Housing Bubble II, and it is not a situation that will end well.
- The national unemployment figure is still stubbornly high, and the figure for “total” unemployment (i.e. U-6), currently at at 13.9 percent, is even scarier.
Bottom Line: The U.S. economy is still very fragile. With the continued softening in Europe and China, and with recent “Fed speak” indicating a desire to end its supportive economic stance, the best suggestion to be made here may very well be to recite the old adage: “Sell in May and go away.”
